What is the effect of personal loans on my credit score over time?

Personal loans can have both positive as well as negative effects on your credit score depending on how you effectively manage them. When you apply for a personal loan, lenders conduct a credit enquiry, which may cause a minor, temporary dip in your score. Once the loan is sanctioned and you start making timely EMI payments, your credit score can improve as consistent repayment demonstrates financial discipline.

Conversely, missed or delayed payments can significantly damage your credit score and it will make it harder for you to obtain credit in the future. High outstanding loan amounts relative to your income can also affect your score, as lenders may view you as over-leveraged.

To maintain or improve your credit score:

• Pay EMIs on time
• Avoid multiple loan applications simultaneously
• Keep your overall debt within manageable limits

Responsible management of your personal loan can enhance your creditworthiness over time, opening doors to better financial opportunities.

Regularly reviewing your credit report helps you monitor how your personal loan is impacting your score and allows you to spot and correct any errors quickly. If you notice a drop in your score then check for missed payments or high credit utilisation and take steps to address them. Staying proactive about your credit health ensures you remain eligible for the best loan offers and financial products available in the market in 2025. Timely and disciplined management of your personal loan will help you build a strong credit history and achieve your financial goals.